Although the revenue of Super Micro Computer in Q4 exceeded expectations, the EPS was lower than expected and the gross margin declined, which raised concerns on Wall Street about its long-term profitability in the AI server business. Super Micro's stock price fell more than 13% after hours.
There is bad news in the red-hot AI world again, this time for Super Micro Computer.
On Tuesday, server manufacturer Super Micro Computer released its fourth quarter earnings report with mixed results, revenue exceeded expectations, but gross margin decreased, and EPS fell short of expectations. Specifically:
Revenue: Q4 revenue is 5.31 billion US dollars, a year-on-year increase of 143.6%;
EPS: Q4 EPS is US$6.25, a year-on-year increase of 78.1%, which is lower than the expected US$8.14;
Gross margin: Q4 gross margin is 11.2%, a year-on-year decrease of 5.8 percentage points;
Although revenue exceeded expectations, the EPS and gross margin decline caused Super Micro Computer's stock price to rise sharply after the bell, followed by a drop of more than 13%.
Super Micro Computer, with its AI servers entering the AI battlefield, unfortunately didn't receive enough attention.
As a manufacturer of AI servers, Super Micro Computer also benefited from the AI heat wave in the past two years. This year, with the increase in demand for AI servers, the company's stock price has doubled and has been included in the S&P 500 and the Nasdaq 100 Index. In addition, Super Micro Computer estimates in its performance outlook for Tuesday that its revenue will reach $26 billion to $30 billion in the fiscal year ending June 30, 2025, with an average analyst expectation of $23.6 billion.
Although the revenue outlook is optimistic, what really worries Wall Street is its long-term profitability.
In the intense price war with server suppliers such as Dell and HP, Super Micro Computer's Q4 profit margin fell 580 basis points year-on-year (down 430 basis points quarter-on-quarter) to just 11.3%.
Super Micro Computer's executives stated after the performance announcement that the gross margin was negatively affected by business with large clients and increased investment in the new liquid-cooled server supply chain, as these clients typically receive preferential prices through substantial orders. The company plans to expand its new product and manufacturing supply chains in Taiwan and Malaysia to achieve the target range of 14% to 17% gross margin.
However, Wall Street is not buying this, and analysts pointed out that Super Micro failed to achieve its profit target in the last quarter, which is likely to aggravate Wall Street's concerns about its profitability. This is also a key reason for Super Micro Computer's sharp post-market decline.
Lack of profitability seems to be a common problem for AI server manufacturers.
Not only Super Micro Computer, but competitors like HP and Dell in the server business also have profitability issues.
When Dell announced its first quarter financial report at the end of May, the company predicted that the adjusted gross margin in the 2025 fiscal year would fall by nearly 150 basis points, and the adjusted EPS would be US$1.55 to 1.75, far lower than the analysts' expected US$1.84.
Dell's management predicted that the high cost of investment in its AI server business will drag down full-year gross margin, and profits will bear certain pressure at that time, unable to meet the high expectations of the outside world.
The gross margin of HP in the second quarter is 33%, a year-on-year decrease of 3 percentage points and a decrease of 3.4 percentage points from the previous quarter.
The decline in gross margins of AI server suppliers such as Super Micro, Dell, and HP also reflects the investment they have made to compete for the AI server market and their fierce price wars with each other, but their management generally remains bullish about the future of AI business.
Super Micro Computer's CEO Charles Liang also stated on Tuesday: 'We are ready to become the largest IT infrastructure company.'
Editor/Lambor